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Lord Thomas of Gresford: My Lords, the various stages of the Bill have illustrated the inadequacy of the Barnett formula. Its foremost critics have been the noble

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Lord, Lord Barnett, himself and also the noble Lord, Lord Callaghan, who was head of the government when that formula was introduced.

And yet, the White Paper on which the Bill was based said that,

    "Annual changes to the Welsh Block will be calculated by the population-based formula used at the moment ... The Government will publish the rules under which the Barnett formula currently operates ... The formula will be up-dated from time to time to take account of population changes".
That population-based formula has not succeeded because the empirical evidence suggests that the economic situation of Wales has been in steady decline during the period that the Barnett formula has been in operation. It has been in decline in the sense that Wales has the lowest gross domestic product in Great Britain--only 83.1 per cent. of the United Kingdom average--the lowest personal disposable income in any region in the United Kingdom and average earnings are the second lowest in Great Britain. Economic inactivity in Wales is more than 4 per cent. higher than it is in England. Those are the words of Mr Peter Hain in another place.

If one adds to those criticisms the statistics which show the poor health of the Welsh population, the poorer housing conditions and the lower education achievements, the only conclusion which one can reach is that Wales needs more funding than has been previously provided under the Barnett formula.

As at present exists, the Barnett formula does not allow for an increase in resources. It follows that I have every sympathy with the sentiments which lie behind the amendment proposed by the noble Lord, Lord Roberts of Conwy. But I still maintain my opposition to the amendment of the noble Lord, Lord Elis-Thomas, which would seek to enshrine the Barnett formula in statutory form in a way which we see to be completely unacceptable.

At present, the measure says that:

    "The Secretary of State shall from time to time make payments to the Assembly out of money provided by Parliament of such amounts as he may determine".
I would hope that given that wide discretion, the Government will move away from the Barnett formula; will enter into positive discussions with the Welsh assembly when it is formed; and will arrive at a suitable sum of money which will meet the needs of the Welsh people.

Lord Crickhowell: My Lords, clearly my reading over the past 24 hours has been the same as that of the noble Lord, Lord Elis-Thomas. I too have in front of me Pathway to Prosperity published by the Welsh Office and the Official Report of the debate in another place on 8th July. On this occasion I find myself agreeing with the noble Lord and able to support both amendments.

The noble Lord who has just spoken referred to the decline of the Welsh economy. Anyone who has read Pathway to Prosperity would feel that that was a distortion of the picture painted. I read just one sentence

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from the document. The words at paragraph 3.1 are perhaps more accurate when they say that:

    "Although Wales has recovered well from profound economic change, the Welsh economy currently creates less wealth than many regions of similar size in the industrial nations".
That seems to me to be a question of fact that few could challenge.

I should like to focus on one other point made by the noble Lord, Lord Thomas. He criticised the amendment tabled in the name of the noble Lord, Lord Elis-Thomas, on the grounds that it seeks to enshrine the Barnett formula in the legislation. I do not see how it could do so when it also refers specifically to,

    "any future arrangements which may be substituted for it".

I should like to dwell a little longer on the Welsh Office document produced by the Secretary of State to which I have referred. I believe that it is directly relevant to the amendments that we are now debating. To begin with, I turn to the conclusions contained in Chapter 9 and the astonishing and, I believe, wholly inaccurate statement:

    "For the first time Wales has the opportunity to direct its own economic destiny",
together with the further words in the same chapter, which state:

    "Our success in achieving the vision will be judged against how well we do in closing the GDP gap, raising employment rates, increasing average earnings, and spreading prosperity".
My criticism of the document is not that it is not a rather good analysis of the condition of Wales, the problems confronting it and the challenges that it faces, but the fact that it contains a number of statements which I believe are misleading about the powers of the assembly to do much about the situation.

I do not criticise the general tone of the document; indeed, there were times when I thought that, perhaps, the words drafted by my noble friend Lord Roberts of Conwy and myself a decade or more ago had been lifted from the records of the Welsh Office and reproduced. One of the most curious references--

Lord Elis-Thomas: My Lords, I am much obliged. Although I accept that some of the wording may be the same, will the noble Lord accept that, this time, the figures are different? Indeed, never before has the 200,000 job shortfall been so clearly and cruelly identified.

4.15 p.m.

Lord Crickhowell: My Lords, it is true that the shortfall has been identified, though I believe that that particular section is a subject for debate and analysis in itself. I am saying that most of the words contained in this document might have been drafted by a succession of Secretaries of State; indeed, they have been incorporated in speeches made by a succession of Secretaries of State over the past 20 years. However, none the worse for that is the fact that they are now brought together in a coherent whole which paints an overall picture.

It is a little curious that the document suggests that the assembly is likely to produce a degree of consistency and stability and that things will not change abruptly every time there is a change of Secretary of State. The reality is

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that things have not changed abruptly. There has been a consistency perhaps going back even to the time of the last Labour government when they introduced the legislation that set up the Welsh Development Agency. That was certainly carried forward during the time when I and my noble friend Lord Walker were Secretaries of State and through the time of the policies pursued by my noble friend Lord Hunt. I suppose I have to acknowledge that there might have been a minor diversion from that path during the time when Mr. Redwood was in charge of our affairs. However, things were restored pretty quickly on to the same track when the present Leader of the Opposition was Secretary of State for Wales.

The interesting thing about the document is the way in which Mr. Ron Davies has now joined that succession of Secretaries of State and the remarkable consistency with which he appears to be following the policies and objectives that we pursued. It is a welcome conversion: I shall not say on the road to Damascus, but there are policies espoused in the document and descriptions of the role of the private sector and of the need for partnership that I would not perhaps have expected to hear from Mr. Davies just a few years ago.

Therefore, I welcome the fact that we have a document which sets out the problems which confront us in Wales and the challenges that we face. But the fact is, as clearly set out by the Secretary of State in his introduction, the Welsh economy is part of a UK economy trading in a single European market and monetary and fiscal policies are set at the UK level. It is also quite clear that we are part of a European community and that the policies of the European Union are of central importance to Wales. Against that background, I find it hard to see quite how the assembly is to have the control of its economic destiny in the way suggested in the document. I fear--as, indeed, one Member of Parliament suggested in the debate in the other place to which I referred earlier--that much of what is entailed in the reorganisations that will be carried out as a result of the Bill will have only a marginal effect.

However, what is absolutely clear is that, in so far as the Welsh assembly is to have an influence and be able to use the powers that it does have--entirely the same as the powers that the Welsh Office, essentially, now has--much will depend on its ability to use the resources made available to it by the Government through the Barnett formula as it now is, or through any substitute which replaces it.

What is also clear is the fact that the requirements will change from time to time. Again, it was pointed out in the debate in another place on 8th July that we are about to see a reorganisation of regional policy boundaries, which will have a profound effect on Wales. Indeed, some very important questions were asked in the other place about how the financial consequences were to be funded and what scope there would be for providing the funds required to deal with the problems identified in the valleys and west Wales.

Perhaps I may say here that, although there has been a switch in the economic situation in Wales with growing problems in the west, I believe that the problems of the valleys may be of a different nature and perhaps may be solved in a rather different way. There have been great

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economic changes, many of which have provided a foundation for future prosperity in employment in the valleys. The firms, the technologies and the new industries that are referred to in the document are all in close proximity to the valleys, linked by the improved road and rail facilities which now exist. In the valleys we are suffering from the understandable social consequences that are the hangover from the long period, the many decades, of industrial change and decline. As the people who suffered most from those changes reach retirement age and a new generation takes over, I think we may find a new sense of energy and confidence coming to the valleys, together with a reduction in the problems with which we are confronted at present.

The real problems are further west. The document wisely points out that, whatever policies are pursued by the so called new "powerhouse" and the Welsh assembly, it is firms which decide where they will be located. Those of us who worked hard over long periods of time to bring new industry into Wales will know that we also worked equally hard to ensure that quite a lot of that industry went to those western parts which are afflicted by the present problems. However, one cannot dictate such matters: one can only encourage and assist. At the end of the day firms will go to the location where they believe they can prosper. There is nothing in the document which really suggests that there are new solutions. I give way to the noble Lord.

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